The present invention relates to mortgages, financing or debt instruments and more particularly to a method and system for debt protection or cancellation.
Due to economic uncertainty and the likelihood for such uncertainty to continue in the future, mortgagors and other debtors may be interested in protection or cancellation of debt in the event of some occurrence. Examples of such unforeseen occurrences may include disability of the borrower or mortgagor, involuntary unemployment, a legal determination of insolvency, accidental death or the like. Several insurance companies offer credit insurance that will pay off a mortgagor's or debtor's loan in the event of untimely death. Such insurance is known in the industry as credit life and disability insurance and is marketed or sold to mortgagors or debtors after the loan closing. Credit insurance products provide indemnity based benefits that are paid directly to the insured in the event of a claim. Further, the premiums for the insurance policies are often paid in a lump sum at the time of loan closing. Credit insurance products are stand-alone insurance policies and are not an addendum to the promissory note or debt instrument that is executed by the borrower or mortgagor at the time of loan closing. The premium for credit mortgage insurance is generally paid in a lump sum at the time of the loan closing by the borrower and is often added to the mortgage loan balance.
For mortgage borrowers who can only provide 10% down payment on the purchase of real estate, there are numerous companies that provide mortgage insurance. In the event of the borrower's inability ot meet the contractual requirements of the mortgage, this product operates to pay the lending institution the difference between 10% and the 20% down payment required by the secondary mortgage market (generally the Government Sponsored Entities such as Fannie Mae or Freddie Mac). In this event, the lending institution becomes the beneficiary of the mortgage insurance policy and there is no agreement or obligation of the lending institution to waive further payment of the debt or to cancel the debt. Rather, the lending institution is paid out of the proceeds of the mortgage insurance policy to settle the debt.